Last Updated on Sunday, 9 July, 2023 at 9:31 am by Andre Camilleri
One of the key conclusions of the Malta Sustainability Forum (Confronting pension inequity – unmasking the silent struggle) regarding retirement is the importance of inculcating financial capability education. It was underlined that preparing for retirement requires knowledge of how the pension system works so that a person can understand the gap between the pension income and income earned during employment and how this gap can be bridged. Planning for retirement, however, is only one important aspect of the retirement adequacy conundrum. One must go beyond planning – taking the necessary steps across one’s lifetime to build a retirement nest egg. This includes knowledge of budgeting, saving, investing and consumer rights of a complex financial landscape.
Over the past decade, much has been done concerning instilling financial capability core knowledge and skills domains. I was privileged to lead an inter-ministerial group of experts to draw up Malta’s first national (2017 to 2021) and second (2022-2025) financial capability strategies. Ġemma was set up in 2017 to implement the first national strategy and has undertaken a comprehensive financial capability programme across different population cohorts using different media, including gamification. The National Curriculum Framework 2012 established financial literacy as one of the key cross-curricular themes and learning outcomes were established in the curriculum for various subjects in the junior and senior secondary education cycles. Non-government organisations, like the JA Malta Foundation, have also promulgated extensive financial capability education programmes. The Malta Stock Exchange routinely holds education sessions on investments. These are just a few examples of various financial capability programmes underway.
Though much has been achieved, we are still way behind other countries such as New Zealand, the UK, Australia, Canada or the US regarding a financially capable, savvy population. I believe there are two reasons why we have not yet managed to up the tempo to a level that allows us to instil financial capability as part of the fabric of our society.
First, while many financial capabilities activities are underway, these do not come together cohesively. Too often, these are disparate initiatives where the glue between them is missing. This prevents Malta from having a highly connected, networked and intertwined approach towards instilling financial capability. The old and new national financial capability strategies (2022-2025) strongly underlined that achieving a financially capable savvy citizen is a national collaborative sustained effort. Vertical strategic partnerships, while important, on their own do not suffice. Sure, and it is given that the government has a critical and leading role in achieving such an objective. It is also a societal obligation generally – lack of financial capability, for example, is strongly correlated with poverty – and the financial services sector specifically.
When I drew up the 2022-2025 national financial capability strategy, I argued and recommended in the strategy that a National Council on Financial Capability be created to bring together all stakeholders. Looking back, I do not believe this would suffice. I believe a public-private partnership should be established, which would act as a national centre of excellence for inculcating financial capability as a core life skill for Maltese citizens.
Second. Setting up a national public-private partnership mandated to achieve a financially capable, savvy Maltese citizen requires financing. This brings me to the financial services sector specifically. When I sought to implement the 2017-2021 national financial capability strategy, one of my major disappointments was how few financial institutions sought to support Ġemma’s programmes. Many a time, where supported, the financial support provided was paltry. I believe that financial service providers have both a social and moral obligation to ensure that people who invest in financial products, which constitute a complex landscape to navigate, are financially literate and capable in terms of:
- What the financial products they offer mean, how they will impact them and the related risks and returns;
- Ensuring their clients know their rights and how to respond to them when issues arise; and
- Embracing the principles of integrity, fair conduct, respect and transparency by improving their client’s financial capability to reach better-informed financial decisions that fit their circumstances.
A financially capable, savvy Maltese citizen is likely to invest more than less in financial products – for retirement or investment. And a financially capable, savvy Maltese citizen is more likely to make better-informed decisions, thus resulting in, say, lower incidents of misselling scandals and thus increased trust in the financial services system. The result is a “win-win” situation for all. Given the millions of profits they generate yearly, I posit that the financial services industry should take a far more active and aggressive role in financing programmes and initiatives directed to ensure that Maltese citizens become financially capable.
In the absence of this, I argue that the government should place a levy on all financial service providers as a percentage of profitability, fees to corporate services providers, and so on to finance a national financial capability fund governed by the proposed public-private financial capability centre of excellence. And the government would demonstrate its commitment to attaining a financially capable, savvy Maltese citizen by matching the funds generated from the levy placed on local financial service providers.